China Sportswear Sector Summary
Core Content
The China sportswear sector is expected to show improvement in 1Q23E, with retail sales growth significantly better than in 4Q22. Despite the sector bottoming out in 1Q23E, brands are likely to issue conservative guidance for FY23E due to lingering effects from the pandemic and inventory adjustments. However, there is potential for margin improvements due to better retail discounts and lower input costs.
Main Points
- Sector Recovery: The sector is expected to have bottomed out in 1Q23E, with YTD retail sales growth showing meaningful improvement compared to 4Q22.
- Inventory Turnaround: Inventory levels and retail discounts have improved, with the inventory-to-sales ratio expected to shorten by 0.5 to 1.0 months in 1Q23E compared to 4Q22.
- Performance Outlook: Anta and Topsports are expected to outperform due to their higher DTC mix. Anta has a DTC mix of 100%, while Topsports and Xstep have 66% and 82% respectively.
- Retail Sales Growth Forecast:
- Anta: Mid-teens
- FILA: 10%+
- Li Ning: Mid-teens
- Xstep: High-teens
- CNY Impact: The CNY period showed strong retail sales growth, which is expected to lock in the numbers for 1Q23E.
- Foreign Brands: Although domestic brands outperformed in 1Q23E, foreign brands may catch up in 2Q23E due to normalization of operations and lower base effects.
Key Information
FY22E Sales/Net Profit Growth Forecast
| Brand |
Sales Growth |
Net Profit Growth |
| Anta |
+9% |
-6% |
| Li Ning |
+13% |
+2% |
| Xstep |
+26% |
+2% |
FY23E Retail Sales Growth Forecast
| Brand |
Retail Sales Growth |
| Anta |
High-teens |
| FILA |
Mid-teens |
| Li Ning |
Mid-teens |
| Xstep |
High-teens |
Valuation Table (H Shares)
| Company |
Ticker |
Rating |
12m TP (LC) |
Price (LC) |
Up/Downside |
Mkt Cap (HK$ mn) |
P/E (x) |
P/B (x) |
ROE (%) |
| Anta |
2020 HK |
BUY |
123.25 |
104.60 |
18% |
283,845 |
33.4 |
26.3 |
25.5 |
| Li Ning |
2331 HK |
BUY |
73.37 |
64.65 |
13% |
170,419 |
34.1 |
28.2 |
26.1 |
| Xstep |
1368 HK |
BUY |
10.44 |
8.34 |
25% |
21,990 |
20.8 |
16.8 |
13.5 |
| Topsports |
6110 HK |
NR |
n/a |
4.53 |
n/a |
42,478 |
17.5 |
14.0 |
21.3 |
Peers Valuation
| Company |
Ticker |
Rating |
12m TP (LC) |
Price (LC) |
Up/Downside |
Mkt Cap (HK$ mn) |
P/E (x) |
P/B (x) |
ROE (%) |
| Anta |
2020 HK |
BUY |
123.25 |
104.60 |
18% |
283,845 |
33.4 |
26.3 |
25.5 |
| Li Ning |
2331 HK |
BUY |
73.37 |
64.65 |
13% |
170,419 |
34.1 |
28.2 |
26.1 |
| Xstep |
1368 HK |
BUY |
10.44 |
8.34 |
25% |
21,990 |
20.8 |
16.8 |
13.5 |
| Topsports |
6110 HK |
NR |
n/a |
4.53 |
n/a |
42,478 |
17.5 |
14.0 |
21.3 |
Conclusion
The China sportswear sector is on a recovery path with improved retail sales and margin performance in 1Q23E. Anta is expected to lead the recovery due to its strong DTC mix and exposure to tier 1 cities, while Topsports and Xstep are also positioned for growth. Despite conservative guidance for FY23E, the sector is anticipated to show better-than-expected results due to the normalization of operations and favorable market conditions.
